By Felix Richter / www.supplychain247.com / February 15th, 2018
Amazon is growing fast, and so are the costs of getting people the products they order from the online ecommerce retailer, and as time goes by, Amazon has to spend a higher percentage of its net sales on staffing, operations, and shipping.
Thus far, despite operating an elaborate network of fulfillment, sortation, and delivery centers, Amazon has ceded control over the “last mile” to the companies it now looks set to start competing with.
As Amazon continues to grow, its logistics costs have skyrocketed over the past decade.
In 2017, the company’s fulfillment and shipping expenses amounted to $25.2 billion and $21.7 billion respectively, up from just over $1 billion each ten years earlier. Introducing its own shipping service would not only give Amazon the chance to keep shipping costs at bay, it would also reduce the risk associated with relying on UPS and FedEx for last-mile delivery.
In its 10-K report, Amazon notes: “We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers.
If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience.”
As the following chart shows, the relative weight of fulfillment and shipping costs on Amazon’s bottom line has increased over the past decade.
Last year, the two cost factors amounted to 26.4 percent of the company’s net sales, up from 16.6 percent in 2007.
The Growing Weight of Amazon's Logistics Costs
Amazon's fulfillment and shipping costs as a percentage of net sales
Using Your Logistics Expertise as a Competitive Weapon When It Comes To Ecommerce
What’s clear is that customers, whether they are consumers or other businesses, are now the center of every company’s supply chain universe; they are the center of gravity that all supply chain processes must revolve around and respond to.
This new customer-centric reality is prompting retailers and manufacturers of all sizes to revisit their strategies and capabilities to succeed in this highly-dynamic, highly uncertain, and highly-competitive environment.
The first step toward success in this new era is arguably the most important: taking a broader perspective on the role and value of supply chain and logistics.
How Do You Get Started? Here Are Four Recommendations:
- Focus on Customers: Understand Their True Requirements and Expectations
- Link the Value of Supply Chain and Logistics to the Company’s Strategy and Business Plan
- Promote Enhanced Collaboration Between Supply Chain, Logistics, Sales, Marketing, and Customer Service
- Leverage the Knowledge, Expertise, and Resources of Your 3PL partners
As you begin your journey toward making logistics a competitive weapon, collaborate with your current third-party logistics partners because they already possess two critical attributes for success: they have already earned your trust by successfully managing your existing fulfillment operations and they are already very knowledgeable about your products and supply chain, as well as very knowledgeable about emerging trends and leading practices in the industry.
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